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UNITED STATES
SECURITIES & EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended December 29, 2000
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______________ to ______________
Commission File No. 1-5375
TECHNITROL, INC.
(Exact name of registrant as specified in Charter)
PENNSYLVANIA 23-1292472
(State of Incorporation) (IRS Employer Identification Number)
1210 Northbrook Drive, Suite 385, Trevose, Pennsylvania 19053
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 215-355-2900
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each Exchange on which registered
------------------- -----------------------------------------
Common Stock
par value $.125 per share New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates as of February
23, 2001 is $ 1,075,021,000 computed by reference to the closing price on the
New York Stock Exchange on such date.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of February 23, 2001.
Number of shares outstanding
Title of each class February 23, 2001
------------------- -----------------
Common stock 33,226,996
par value $.125 per share
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT REFERENCE
- -------- ---------
The Registrant's definitive Proxy Statement, dated Part III
March 28, 2001, to be used in connection with Page 28 of 60 pages
Registrant's 2001 Annual Meeting of Shareholders
Page 1 of 60
Part I
Item 1 Business
General
Technitrol, Inc. is a global manufacturer of electronic components and
electrical contact products. We incorporated in Pennsylvania on April 10, 1947.
We operate two business segments: the Electronic Components Segment and the
Electrical Contact Products Segment. We refer to these segments as the ECS and
the ECPS, respectively. Each segment is managed by a President who reports to
our Chief Executive Officer.
Electronic Components Segment
Our Electronic Components Segment provides a variety of magnetics-based
components, miniature chip inductors and modules. These components modify or
filter electronic signals. They are used primarily in local area network,
Internet connectivity, telecommunication and power-conversion products. We
manufacture these products in the United States, France, Malaysia, Thailand, the
Philippines and the People's Republic of China. We sometimes refer to the
People's Republic of China as the PRC.
Our electronic component businesses operate as a unified business
throughout the world. This unified business operates under the Pulse name.
Our strategy is to expand our electronic components business through a
combination of internal growth and acquisitions. Acquisitions during the last
several years include:
o FEE Technology, S.A. - We purchased FEE on July 3, 1998. FEE designed
and manufactured magnetic components for telecommunication and power
conversion equipment. With the purchase of FEE, we acquired
manufacturing facilities in France, Thailand and Poland. We
subsequently closed FEE's Thailand and Poland facilities.
o GTI Corporation - We completed the acquisition of GTI and its
subsidiary, Valor Electronics, on November 16, 1998. Valor designed
and manufactured magnetics-based components for signal processing and
power transfer functions primarily for local area network products
and, to a much lesser extent, telecommunication and power-conversion
products. Valor's manufacturing facilities were located in the
People's Republic of China and the Philippines. We closed the
Philippines facility and have completed the consolidation of Valor's
PRC facility into our facilities in the PRC.
Page 2 of 60
o EWC, Inc.- We purchased certain assets of EWC, Inc. on October 12,
2000. EWC manufactured magnetic components primarily for the defense
and aerospace industries. We have integrated this business into the
Specialty Components Division of Pulse. The EWC acquisition was not
material to our consolidated financial position or results of
operations; however, it expanded the market penetration of Pulse's
Specialty Components Division.
Electrical Contact Products Segment
Our Electrical Contact Products Segment manufactures:
o electrical contacts and assemblies;
o contact materials;
o thermostatic bimetals;
o clad metal products; and
o precision contact subassemblies.
We also provide selected electroplating and refining services.
We sell these electrical contact products to a wide range of industrial and
consumer product manufacturers. Our products are used in a variety of
applications which affect daily living including:
o residential, commercial and industrial circuit breakers;
o motor controls;
o switches and relays;
o wiring devices;
o temperature controls;
o appliances;
o automobiles;
o telecommunications products; and
o various other electrical products.
Our electrical contact products businesses operate as a unified business
throughout the world. This unified business operates under the AMI Doduco name.
Page 3 of 60
In July of 1998, we acquired certain assets of Metales y Contactos, S.A. de
C.V. Metales designed and manufactured precious and semi-precious metal contacts
used mainly in automobiles and other durable goods. The Metales facility is
located near Mexico City.
In November of 1999, we acquired the operating assets of the Tianjin
Electrical Metal Works electrical contacts business based in Tianjin, PRC. This
acquisition provided the ECPS with a low-cost manufacturing facility to serve
its global customers in the Far East.
In December of 1999, we acquired the operating assets of MEC Betras Italia
S.r.l., located in Italy, which produced electrical contact rivets and stamped
electrical contact parts.
In January of 2000, we finalized our acquisition of a tool and die design
and manufacturing operation near Tallinn, Estonia.
In January 2001, we acquired the electrical contacts business of
Engelhard-CLAL with operations in France, Spain and the United Kingdom.
The ECPS has manufacturing facilities in the United States, Mexico, Puerto
Rico, Germany, Spain, Italy, Estonia, Hungary, France and the PRC.
Our recent acquisitions provide the ECPS with additional lower-cost
operating locations and an enhanced market presence in key areas of the
business. As part of our recent restructuring of the ECPS operations, we
recorded employee termination and related expenses in the first quarter of 2000.
For a further description of these charges, see Item 7 of this report.
Page 4 of 60
Business Segment Financial Information. Amounts are in thousands:
2000 1999 1998
---- ---- ----
Net sales from continuing operations
Electronic Components $ 438,770 $ 307,351 $ 218,876
Electrical Contact Products 225,608 223,085 229,663
--------- --------- ---------
Total $ 664,378 $ 530,436 $ 448,539
========= ========= =========
Operating profit before income taxes
Electronic Components $ 110,892 $ 49,893 $ 37,721
Electrical Contact Products 12,517 11,296 15,695
Electrical Contact Products restructuring and other
non-recurring items (3,305) -- --
--------- --------- ---------
Total operating profit $ 120,104 $ 61,189 $ 53,416
Items not included in segment profit (1) 2,810 (2,180) (1,073)
--------- --------- ---------
Earnings from continuing operations before income taxes $ 122,914 $ 59,009 $ 52,343
========= ========= =========
Assets at end of year
Electronic Components $ 229,560 $ 173,027 $ 177,264
Electrical Contact Products 112,085 111,076 101,422
--------- --------- ---------
Segment assets $ 341,645 $ 284,103 $ 278,686
Assets not included in Segment assets (2) 179,126 97,136 65,448
--------- --------- ---------
Total $ 520,771 $ 381,239 $ 344,134
========= ========= =========
Capital expenditures (3)
Electronic Components $ 23,323 $ 10,894 $ 27,695
Electrical Contact Products 8,379 12,031 14,117
--------- --------- ---------
Total $ 31,702 $ 22,925 $ 41,812
========= ========= =========
Depreciation and amortization
Electronic Components $ 14,129 $ 12,586 $ 9,937
Electrical Contact Products 8,249 6,825 6,343
--------- --------- ---------
Total $ 22,378 $ 19,411 $ 16,280
========= ========= =========
(1) Includes interest income, interest expense and other non-operating items
disclosed in our Consolidated Statements of Earnings. We exclude these
items when measuring segment operating profit.
(2) Cash and cash equivalents are the primary corporate assets. We also exclude
net deferred tax assets when measuring segment assets.
(3) During the past three years, our segments have acquired several companies.
See Note 2 of Notes to Consolidated Financial Statements. We have included
acquired property, plant and equipment in these capital expenditure
amounts.
Page 5 of 60
Our segments recognize revenue upon shipment of product and passage of
title without right of return. We offer our customers credit terms which we
believe are generally consistent with the terms offered in our industries. We
reserve for or write off a customer account when we no longer feel the customer
can or will pay us. We believe that the quality of our customers, which are
generally large global companies, and our extensive customer base limit our
exposure to significant concentrations of customer credit risk. For example, no
customer accounted for more than 10% of sales in 2000, 1999 or 1998. Sales to
our ten largest customers accounted for 36% of sales in 2000, 32% of sales in
1999 and 36% of sales in 1998. Depending on the amount of cash we have from time
to time, we may maintain significant cash investments at financial institutions.
We have no significant intercompany revenue between our segments. We do not
use income taxes when measuring segment results; however, we allocate income
taxes to the segments to determine certain performance measures. These
performance measures include return on employed capital and economic profit. The
following pro forma disclosure of segment income tax expense is based on
simplified assumptions and includes allocations of corporate tax items. These
allocations are based on the proportionate share of total tax expense for each
segment, obtained by multiplying the respective segment's operating profit by
the relevant estimated effective tax rate for the year. The allocated tax
expense amounts for the ECS were, in thousands, $18,850, $10,834 and $12,275 in
2000, 1999 and 1998, respectively. For the ECPS, they were, in thousands,
$4,756, $3,863 and $6,759 in 2000, 1999 and 1998, respectively.
Geographic Information
We sell our products to customers in North America, Europe, Asia and
throughout the world. The following table summarizes our sales to customers in
the United States and Germany, where sales are significant. Other countries in
which our sales are not significant are grouped into regions. We attribute
customer sales to the country addressed in the sales invoice. The product is
usually shipped to the same country.
Amounts are in thousands:
2000 1999 1998
---- ---- ----
Sales to customers in:
United States $295,864 $226,376 $180,541
Europe, other than Germany 130,611 108,339 98,892
Germany 76,279 86,174 85,860
Asia 109,784 70,589 55,914
North America, other than U.S. 46,664 36,507 24,972
Other 5,176 2,451 2,360
-------- -------- --------
Total $664,378 $530,436 $448,539
======== ======== ========
Page 6 of 60
The following table includes net property, plant and equipment located in
the United States, Germany and China, where assets are significant. Other
countries in which such assets are not significant are grouped into regions.
Property, plant and equipment represents all of our relevant assets which have
long useful lives. Amounts are in thousands:
2000 1999 1998
---- ---- ----
Net property, plant and equipment located in:
United States $23,896 $22,554 $23,469
China 27,210 19,170 19,507
Germany 13,935 14,639 16,466
Asia, other than China 14,220 12,563 15,210
Europe, other than Germany 10,477 10,659 11,156
Other 2,660 3,137 3,260
------- ------- -------
Total $92,398 $82,722 $89,068
======= ======= =======
International Operations
We have significant operations outside the United States. These operations,
like all international operations, are subject to a number of risks including:
o currency fluctuations;
o capital and exchange control regulations;
o restrictive government actions; and
o expropriation and nationalization.
We believe that the risks in international operations are greatest in
developing countries. The ECS has significant manufacturing operations in
several developing countries, especially the People's Republic of China.
Although the PRC has a large and growing economy, its potential economic,
political and labor developments entail uncertainties and risks. The risks posed
to us are not unique and we believe are the same as those posed to any U.S.
company doing business in the PRC. While the PRC has been receptive to foreign
investment, we cannot be certain that its current policies will continue
indefinitely into the future. If any country in which we have significant
operations adopts economic, legal, or trading policies harmful to private
industry or foreign investment, such policies could affect us significantly.
The unpredictability of economic forces and government policies in foreign
countries could cause changes to the favorable operating conditions we have
experienced in recent years. We continually monitor business conditions in all
of the regions where we operate.
Page 7 of 60
Sales and Marketing
Sales managers, district managers, direct salespeople and sales agents
execute our sales and marketing activities. We sell to original equipment
manufacturers (OEMs), which design, build and market end-user products. We also
sell to contract manufacturers or companies that provide manufacturing services
to OEMs. We also sell to distributors who sell our products to OEMs and contract
manufacturers.
Competition
We operate in highly competitive industries. The industries are
characterized by numerous firms competing in international markets.
In the ECS, we are a market leader in the primary magnetics markets:
o enterprise networking (LAN/WAN);
o telecommunications (telephony, cable, wireless and Internet access);
and
o power conversion.
Telecommunication and power markets are more fragmented than enterprise
networking, but we believe we have the largest market share in each market.
In the ECPS, our primary markets are appliance, automotive, commercial
controls, construction, electric power and machine tools. There are numerous
competitors, mostly smaller companies, which are not global enterprises.
Backlog
Our backlog of orders at December 29, 2000 was $182.9 million compared to
$92.5 million at December 31, 1999. We expect to ship the majority of the
backlog over the next six months. Customers can cancel orders at any time,
sometimes requiring a payment of cancellation charges. Our delivery times vary
between segments but are generally less than thirteen weeks.
As has been widely reported, the market for electronic equipment,
particularly in the telecommunication market, experienced a significant and
precipitous decline beginning at the end of the fourth quarter of 2000 and
extending to the present time. As with many of our customers and competitors
during this period, we have experienced a significant number of cancellations
and order push outs. This pause in market demand reflects inventory imbalances
across the supply chain, capital formation difficulties (particularly in the
telecommunication market) and other structural capital issues. We believe
backlog is a less accurate indicator of near-term business activity than it was
previously, as customers have adopted "demand-pull" and other creative inventory
management policies.
Page 8 of 60
Raw Materials
We are not dependent on any particular source of supply. However, there are
not many suppliers of certain:
o ferrite materials used in electronic components;
o powder metals used in electrical contacts; and
o specialty steel used in metal laminates.
We experienced significant difficulty and delays in obtaining ferrite
materials during 2000. While this is no longer the case, another shortage of
supply could arise in the future. We have not had any significant difficulty
obtaining any other raw materials and do not currently anticipate that we will
have any significant difficulties in the near future.
The ECPS uses silver and other precious metals as raw material.
Historically, these precious metals have been readily available. However, early
in 1998, the demand for silver increased significantly, and the price of silver
and associated financing costs also increased. This occurred again during the
early part of 1999, although to a lesser extent. The terms of sale within the
ECPS allow us to charge customers for the current market value of silver.
However, financing and other costs cannot always be recovered. Thus far we have
been successful in managing the costs associated with our precious metals.
However, if the terms and conditions under which we obtain silver or other
precious metals change significantly in a short period of time, we may
experience a negative impact on our future operating results.
Research and Development
We do not engage in any basic research activities. Our engineers improve
existing products and develop new products related to current or new product
lines. The amount of expenses we incurred for research and development
activities in each of the last three years is included in Note 5 of Notes to
Consolidated Financial Statements. We own numerous patents, trademarks and
tradenames, but we do not consider our earnings to be materially dependent upon
any one patent, trademark or license.
Environment
Federal, state, and local environmental laws affect most of our
manufacturing operations. These laws relate to the discharge of materials and
the protection of the environment. We will continue to make expenditures to meet
or exceed the environmental standards set by these laws. We charge to earnings
or capitalize, as appropriate, the environmental expenditures as they are
incurred.
We are studying and undertaking certain remedial action with respect to
groundwater pollution and soil contamination at a former GTI facility. The
facility is located in Leesburg, Indiana. We anticipate making additional
environmental expenditures related to this facility in future years. The
expenditures will be for continued environmental studies and analysis and, upon
mutual agreement with
Page 9 of 60
appropriate state agencies, implementation of a remediation plan. Based on our
currentknowledge of the situation, we do not anticipate that the future expenses
associated with the environmental remediation will have a material impact on our
capital expenditures, operating results or liquidity.
We are also involved in several matters relating to superfund sites, none
of which belong to us. Our involvement has generally arisen from the alleged
disposal at these sites by licensed waste haulers of very small amounts of waste
material many years ago. While we cannot predict the future costs of cleanup
activities, capital expenditures, or operating costs for environmental
compliance at these sites, we do not believe they (alone or together) will have
a material effect on our capital expenditures, operating results or liquidity.
We have reserves which we believe are sufficient to cover the aggregate
amount of our existing known environmental liability. These reserves are not
material to our current financial position.
Employees
At December 29, 2000, we had approximately 30,600 fulltime employees
compared with 21,600 at the end of 1999. Our ECS operations in Asia are labor
intensive.
Energy
We did not have difficulty obtaining supplies of electricity, gas or oil in
2000. The ECS headquarters is in San Diego, California, and although it has not
been impacted by the current statewide energy shortage in California, the
potential exists for power interruptions. We believe that existing back-up and
disaster recovery plans would mitigate any disruption to our operations, such
that no material impact on our operating results would arise.
In developing countries, we may experience short interruptions of
electrical service or other utilities from time to time. Our facilities in those
countries generally maintain independent power supplies through back-up
generators. As a result, power interruptions have not had and are not expected
to have a significant effect on our operations.
Products
Within each segment, our primary products are similar in design, material
content, production process, application and customer base. We continually
introduce new or improved products in response to customers' needs and changes
within the markets served. For more information on our products, see pages 2
and 3.
Factors That May Affect Our Future Results (Cautionary Statements for Purposes
of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act
of 1995)
Our disclosures and analysis in this report and in our 2000 annual report
to shareholders contain forward-looking statements. Forward-looking statements
reflect our
Page 10 of 60
current expectations of future events. You can identify these statements by the
fact that they do not relate strictly to historical or current facts. They often
(but not always) usewords such as "anticipate", "estimate", "expect", "project",
"intend", "plan", "believe", and similar terms. From time to time, we also
provide oral or written forward-looking statements in other materials we release
to the public.
Any or all of our forward-looking statements in this report, in our 2000
annual report and in any other public statements we make may turn out to be
wrong. They may be affected by inaccurate assumptions we might make or by risks
and uncertainties which are either unknown or not fully known or understood.
Consequently, no forward-looking statement can be guaranteed. Actual future
results may, and probably will, vary materially.
We provide forecasts of future financial performance. We are optimistic
about our long-term prospects; however, the following issues and uncertainties,
among others, should be considered in evaluating our prospects for the future.
Some of Our Products Are Subject to Rapid Technological Changes.
The ECS operates in an industry known for rapid change, consolidation,
uncertainty and constantly emerging new technologies. Generally, we expect
product life cycles to be very short. Changes in recent years due to the
Internet, on-line services and expansion of networking require the ECS to
maintain a strong engineering and development program. This program is necessary
to avoid product obsolescence and to meet or exceed our customers' expectations.
Accordingly, we expect to continue to spend money on engineering and development
with no assurances that our efforts in these areas will continue to be
successful.
We Cannot Predict the Market Growth Rate for Our Products.
The ECS sells its products into markets that are characterized by rapidly
changing growth rates. These markets include LAN, telecommunication devices and
power-conversion products. It is often difficult for our customers or us to
assess worldwide demand for upgrades or replacement of networks or the pace at
which telecommunication infrastructure will be deployed throughout the world.
These markets may counterbalance one another in terms of growth or they may move
in the same direction. All of these variables will impact ECS growth rates.
The growth rates of housing, construction, appliance, telecommunication
systems and auto sales, which are highly cyclical, will impact the revenue
growth of the ECPS and the ECS.
We May Receive Lower Prices for Our Products.
Both the ECPS and the ECS operate in businesses characterized by
continually declining average selling prices on existing products. Future prices
for our products may decrease from historical levels, depending on competition
and other factors, and we may not be able to bring our manufacturing costs down
proportionately or continue to introduce
Page 11 of 60
new products, each of which is necessary to maintain average selling prices and
profitability.
We May Not Be Able to Maintain Our Current Gross Margins and Operating Margins
as a Percentage of Sales.
Cost of sales as a percentage of sales is different for each segment and
can vary greatly based on sales mix and method of distribution. Mix factors may
increase cost of sales as a percentage of sales in the future. Acquisitions that
we make may also reduce our gross margin and operating margin percentages,
temporarily or permanently. We may not be able to reduce selling, general and
administrative expenses at the same rate as a reduction in gross margins.
We May Not Be Able to Obtain Sufficient Quantities of Raw Materials.
If we cannot obtain sufficient quantities of raw materials, including
precious metals used by the ECPS, or if the cost of those materials increases
significantly, and we cannot increase our selling prices, future operating
results could be much different from our expectations. Please refer to the
discussion of raw materials on page 9 of this report.
We May Not Successfully Identify, Integrate, or Manage Acquisitions.
We have completed several acquisitions over the past three years. The
degree of success of these acquisitions depends on our ability to:
o successfully integrate or consolidate acquired operations into our
existing segments;
o identify and take advantage of cost reduction opportunities; and
o further penetrate the market for the products acquired.
Integration of acquisitions may take longer than expected and may never be
achieved to the extent originally anticipated. This could result in business
growth which may be less than anticipated or manufacturing costs which are
higher than anticipated. In addition, acquisitions may cause a disruption in our
ongoing business, distract our managers, unduly tax our other resources and make
it difficult or impossible to maintain our historical standards and procedures.
The timing, price, structure and success of future acquisitions are
uncertain. In addition, we may not be able to identify suitable acquisition
candidates at reasonable prices, thereby reducing the aggressive acquisition
component of our growth.
We Operate Internationally and in Developing Countries.
We are a global company subject to the risks of doing business outside of
the United States, particularly in developing countries. Please refer to the
discussion of international operations on pages 6 and 7.
Page 12 of 60
The slowing of Asian economies during the latter part of the 1990s affected
portions of our business as the installation and growth of communications and
electrical infrastructure systems that utilize our components were delayed. We
remain optimistic about our prospects in the Asia Pacific region and are
committed to our presence in Asia. We believe our widespread manufacturing
presence in Asia has been a key factor in our success. Nevertheless, we are
aware of the inherent unpredictability of the economic situation in Asia. We
attempt to carefully monitor all relevant developments throughout Asia.
Effectively Managing Our Growth May Be Difficult.
We have grown rapidly in the last five years, and we expect to continue to
grow internally and through additional acquisitions. This growth is likely to
place significant strain on our resources and systems. To manage our growth, we
must implement systems, recruit and develop additional human resources and
control our operations by continually training employees at every level.
Other Factors
In addition to the factors discussed above, other factors that could
materially affect actual results include, but are not limited to:
o business conditions and the degree of optimism affecting the economies
throughout the world in general;
o competitive factors such as competitors seeking increased market share
based on price;
o manufacturing efficiencies and capacity;
o legal liability or changes in liabilities unknown at this time;
o risk of obsolescence due to shifts in market demand;
o information technology issues related to our computer systems or the
computer systems of our suppliers or customers;
o the timing of customer product introductions;
o precious metals leasing costs cannot always be recovered;
o foreign exchange ceilings imposed by foreign governments could impact
our ability to internally transfer cash balances; and
o liquidity requirements could necessitate movements of existing cash
balances, causing unfavorable tax consequences and potentially less
than ideal foreign currency exchanges in the spot markets.
We believe that we have the market opportunities, product offerings,
facilities, personnel and competitive and financial resources for continued
business success. However, future events, costs, margins, product mix and
profits are all subject to unpredictable factors including those discussed
above.
Page 13 of 60
Item 2 Properties
We produce and market our products all over the world. At December 29,
2000, we operated 22 manufacturing plants in 13 countries. Our corporate offices
are located in Trevose, Pennsylvania where we lease approximately 11,000 square
feet of office space. The lease expires in 2006.
At December 29, 2000, the ECS had 7 manufacturing facilities, 4 of which
are owned. Principal manufacturing facilities are located in the People's
Republic of China, the Philippines, Malaysia and Thailand. Our PRC facilities
are operated under negotiated contracts with the provincial government of China.
In addition to the manufacturing space, each PRC facility includes space for
staff quarters and dormitories. The ECS also owns and leases office and
warehouse space in San Diego to serve as the segment's headquarters and North
American distribution center. Including office space for administrative and
sales functions, the ECS owns approximately 344,000 square feet of space and
leases approximately 2,480,000 square feet. Our lease terms vary by facility.
See Note 7 of Notes to Consolidated Financial Statements for additional
information related to our outstanding leases.
The ECPS operates 15 manufacturing plants of which 8 are owned. Our
principal manufacturing facilities are located in the United States, Germany,
Italy, Spain, Estonia, Hungary, Puerto Rico, Mexico and China. Our most
significant leased manufacturing plant is located in Export, Pennsylvania. This
lease expires in 2001 but it is expected to be renewed. Total space used by the
ECPS is 1,419,000 square feet, including office space for administrative and
sales functions.
The productive capacity and extent of utilization of our facilities are
difficult to quantify. In any one facility, maximum capacity and utilization
vary periodically depending on the segment's manufacturing strategies, the
product being manufactured and the current market conditions and demand. We
estimate that our average utilization of overall production capacity in 2000 was
between 75% and 90% for the ECPS and 85% to 100% for the ECS.
Item 3 Legal Proceedings
We have been named in several lawsuits. We consider lawsuits to be part of
what arises in the normal course of business. We do not expect the outcome of
any of these lawsuits to have a material adverse effect on our consolidated
financial condition.
Item 4 Submission of Matters to a Vote of Security Holders - None
Item 4a Directors and Executive Officers of the Registrant
Incorporated by reference to our Proxy Statement dated March 28, 2001.
Page 14 of 60
Part II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters
Our common stock is traded on the New York Stock Exchange. The following
table reflects the highest and lowest sales prices in each quarter of the last
two years. The dividends paid are also shown. All amounts reflect stock splits
through December 29, 2000.
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
2000 High $ 30.63 $ 49.28 $ 76.13 $ 62.13
2000 Low $ 19.38 $ 24.31 $ 45.50 $ 36.56
2000 Dividends Paid $.03375 $.03375 $.03375 $.03375
1999 High $ 16.10 $ 16.32 $ 18.60 $ 23.13
1999 Low $ 9.94 $ 11.32 $ 16.19 $ 15.78
1999 Dividends Paid $ .0300 $ .0300 $.03375 $.03375
On January 5, 2001, there were approximately 1,292 registered holders of
our common stock, which has a par value of $.125 per share and is the only class
of stock that we have outstanding. See additional discussion on restricted
earnings in Item 7, Cash Flows from Investing Activities, and in Note 8 of Notes
to Consolidated Financial Statements.
Page 15 of 60
Item 6 Selected Financial Data (In Thousands, Except Per Share Data)
2000(a) 1999(a) 1998(a) 1997(a) 1996(a)
---- ---- ---- ---- ----
Net sales(b) $664,378 $530,436 $448,539 $397,067 $243,312
Net earnings(b) $ 99,308 $ 44,312 $ 33,309 $ 29,086 $ 18,138
Earnings per share(b):
Basic (c) $ 3.05 $ 1.38 $ 1.04 $ .90 $ .57
Diluted (c) $ 3.02 $ 1.36 $ 1.03 $ .90 $ .56
Total assets $520,771 $381,239 $344,134 $255,334 $218,347
Total long-term debt $ 48,588 $ 60,496 $ 60,898 $ 32,957 $ 41,701
Shareholders' equity $324,430 $215,635 $174,809 $142,375 $103,590
Net worth per share (c) $ 9.82 $ 6.63 $ 5.40 $ 4.41 $ 3.24
Working capital $230,397 $141,851 $102,336 $ 87,618 $ 74,787
Current ratio 2.7 to 1 2.5 to 1 2.0 to 1 2.2 to 1 2.1 to 1
Number of shares outstanding:
Weighted average,
including
common stock
equivalents 32,859 32,492 32,406 32,274 32,192
Year end 33,237 32,532 32,340 32,270 31,950
Dividends declared per share (c) $ .1350 $ .13125 $ .11625 $ .105 $ .100
Price range per share:
High (c) $ 76.13 $ 23.13 $ 22.19 $ 21.56 $ 10.94
Low (c) $ 19.38 $ 9.94 $ 8.44 $ 8.57 $ 4.78
(a) During 2000, we purchased a tool and die manufacturing operation in Estonia
and certain operating assets of the magnetics components business EWC, Inc.
In 1999, we acquired the operating assets of Tianjin Electrical Metal Works
and MEC Betras Italia S.r.l. In 1998, we acquired FEE Technology, Metales y
Contactos and GTI Corporation. We acquired the magnetic components business
of Nortel in 1997 and Doduco GmbH in 1996. See Note 2 of Notes to
Consolidated Financial Statements.
(b) Amounts reflect continuing operations. We sold the Test and Measurement
Segment on June 4, 1997.
(c) Per share amounts reflect stock splits through December 29, 2000.
Page 16 of 60
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
This discussion and analysis of our financial condition and results of
operations, as well as other sections of this report, contain certain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Actual results could differ materially. Please
refer to pages 10 through 13 of this report for a description of
"forward-looking statements" and factors that may affect future results.
We are making the statements below to inform our shareholders of our
general financial condition and our results of operations. We are not trying to
influence investors to buy or sell our securities.
Business Overview
Please refer to Part I, Item I for a description of our continuing
businesses and strategic initiatives.
We believe that the investments and strategies described in Part I, Item 1
have positioned us for future growth and the creation of additional shareholder
value.
Liquidity and Capital Resources
Working capital at December 29, 2000 was $230.4 million, an increase of
$88.5 million from the working capital of $141.9 million at December 31, 1999.
Worldwide, cash on hand at December 29, 2000 was $162.6 million, approximately
$74.5 million greater than at December 31, 1999 while outstanding debt decreased
by approximately $11.9 million. Cash provided by operating activities was more
than adequate to pay for capital expenditures, acquisitions, and dividends. The
operating results generated by the ECS were the primary cause for these
favorable changes in our working capital, cash on hand and outstanding debt
since December 31, 1999.
We believe that the combination of cash on hand, cash generated by
operations and, if necessary, additional borrowings under our credit facilities
will be sufficient to satisfy our operating cash requirements for the
foreseeable future. In addition, we may use internally generated funds and
additional borrowings for acquisitions of suitable businesses or assets.
All existing debt facilities mature by December 31, 2001. We believe that
we can replace all available amounts at reasonable rates relative to our
liquidity needs and the current credit market conditions.
At December 29, 2000, we had approximately $171.7 million of unused lines
of credit from banks.
Page 17 of 60
Cash Flows from Operating Activities
Cash flow from operating activities was $113.8 million for the year ended
December 29, 2000, an increase of $44.5 million from 1999. Net earnings before
depreciation and amortization, and increases in accounts payable and accrued
expenses, contributed to cash provided by operations. Offsetting these favorable
cash flow factors was an increase in accounts receivable due to record sales
levels contributed by the ECS during the fourth quarter of 2000 and an increase
in inventory due to a higher business levels during 2000 and a December 2000
slowdown in the telecommunication market.
Cash Flows from Investing Activities
Cash used by investing activities was $34.8 million during 2000. We used
approximately $5.4 million of cash to pay for acquisitions and $30.0 million to
pay for capital expenditures.
Cash payments for capital expenditures, excluding acquisitions, represented
approximately 4.5% of net sales during 2000 and exceeded overall depreciation by
about $11.4 million. We make capital expenditures to expand production capacity
and to improve our operating efficiency. Our capital expenditures in 2000
reflect a significant expansion of capacity in the ECS.
With the exception of approximately $8.5 million of retained earnings in
China which are restricted by PRC regulations, substantially all retained
earnings are free from legal or contractual restrictions. We have not
experienced any significant liquidity restrictions in any country in which we
operate and none are foreseen. However, foreign exchange ceilings imposed by
local governments and the sometimes lengthy approval processes which some
foreign governments require for international cash transfers may delay our
internal cash movements from time to time. The retained earnings in foreign
countries represent a material portion of our assets. We expect to reinvest
these earnings outside of the United States because we anticipate that a
significant portion of our opportunities for growth in the coming years will be
abroad. If such earnings were brought back to the United States, significant tax
liabilities could be incurred in the United States. This could have a material
unfavorable impact on our net income and cash position.
Cash Flows from Financing Activities
During 2000, we borrowed approximately $27.3 million and repaid
approximately $36.2 million of debt. We entered into an additional variable-rate
Eurocurrency offering basis credit facility. This facility has a maximum draw of
$5.0 million and was renewed in February 2001. We use the proceeds of this
additional debt instrument to finance working capital.
We paid our 100th consecutive regular dividend in January 2001. Dividends
paid in 2000 were $4.4 million compared to $4.1 million in 1999. We expect to
continue making quarterly dividend payments for the foreseeable future.
Page 18 of 60
Foreign Currency Effects
During 2000 and 1999, the Euro devalued approximately 6% and 14%,
respectively, relative to the U.S. dollar. As a result, we incurred foreign
currency losses at our ECS European operations, as Euro denominated net assets
were translated to U.S. dollars for financial reporting purposes. In addition,
we experienced a negative translation adjustment to equity as a result of the
devaluation of the Euro, as our investment in the ECPS's European operations was
reduced to its U.S. dollar equivalent. This U.S. dollar decrease in investment
value resulted in a reduction in equity of approximately $.2 million in 2000 and
approximately $1.8 million in 1999.
During 1998, we did not experience any significant foreign currency gains
or losses, but had a positive adjustment to equity of approximately $1.7
million, as a result of strengthening of the Deutsche mark and the French franc
during the second half of 1998.
We transact a significant amount of sales in currencies other than the U.S.
dollar. Therefore, changing exchange rates often impact our financial results.
This is particularly true of movements in the exchange rate between the U.S.
dollar and the Euro because our European sales are denominated primarily in Euro
currencies. In the future, it is possible that an increasing percentage of our
sales will be denominated in non-U.S. currencies. This would increase our
exposure to foreign currency fluctuations.
Please see the section titled "Foreign Currency Risk" under Item 7a of this
report for a description of our strategies to manage foreign currency risks.
New Accounting Pronouncements
In July 2000, the Emerging Issues Task Force reached a consensus on issue
No. 00-15 ("EITF 00-15"), "Classification in the Statement of Cash Flows of the
Income Tax Benefit Realized by a Company upon Employee Exercise of a
Nonqualified Stock Option." The EITF concluded that income tax benefits realized
upon an employee's exercise of a nonqualified stock option should be classified
as an operating cash flow. Accordingly, the Company has reported the tax
benefits resulting from the exercise of stock options on the Consolidated
Statements of Cash Flows.
In July 2000, the Emerging Issues Task Force issued No. 00-10 ("EITF
00-10"), "Accounting for Shipping and Handling Fees and Costs," which concluded
that all amounts billed to a customer in a sale transaction related to shipping
and handling, if any, represent revenue to the vendor and, therefore, should be
classified as revenue. EITF 00-10 is effective no later than the required
implementation date for SAB 101 (see below). Adoption of this pronouncement did
not have a material effect on the Company's revenue, operating results or
liquidity.
Page 19 of 60
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which
outlines criteria that must be met to recognize revenue and provides guidance
for presentation of revenue and for disclosure related to revenue recognition
policies in financial statements filed with the SEC. SAB 101 is effective the
fourth fiscal quarter of fiscal years beginning after December 15, 1999 as
amended by SAB 101B. Adoption of this pronouncement did not have a material
effect on the Company's revenue, operating results or liquidity.
In June of 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments and for hedging activities. This standard
was amended by Statement of Financial Accounting Standard No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities." These
standards are concurrently effective for quarters of fiscal years beginning
after June 15, 2000, and the Company adopted this standard during the first
quarter of its fiscal 2001 year. Adoption of this standard is not expected to
have a material effect on the Company's operating results or liquidity.
Results of Operations
Our results for 2000, 1999 and 1998 are as follows. Amounts are in
thousands:
2000 1999 1998
---- ---- ----
Net sales:
Electronic Components $ 438,770 $ 307,351 $ 218,876
Electrical Contact Products 225,608 223,085 229,663
--------- --------- ---------
Total $ 664,378 $ 530,436 $ 448,539
========= ========= =========
Earnings before income taxes:
Electronic Components $ 110,892 $ 49,893 $ 37,721
Electrical Contact Products 12,517 11,296 15,695
Electrical Contact Products Segment restructuring and other
non-recurring items (3,305) -- --
--------- --------- ---------
Operating profit 120,104 61,189 53,416
Other income (expense), net 2,810 (2,180) (1,073)
--------- --------- ---------
Earnings from continuing operations before income taxes $ 122,914 $ 59,009 $ 52,343
========= ========= =========
Page 20 of 60
Revenues
Our net sales for 2000 increased by $133.9 million, or 25.3%, from 1999. We
attribute the 2000 sales increase to:
o a strong demand cycle throughout 2000 in the ECS for data networking,
telecommunications and power conversion markets; and
o continued new product development by our customers and our related
record number of new product design wins.
Our 2000 ECS sales increased $131.4 million, or 42.8%, from the prior year.
As noted above, we experienced strong demand for our products throughout 2000
due to a strong demand cycle and record number of new product design wins. Our
sales growth was not impacted by acquisitions and was due to unprecedented
market growth across all of our primary product areas.
Sales in the ECPS increased by $2.5 million, or 1.1%, from 1999 to 2000.
The ECPS sales in 2000 were negatively affected by:
o an average Euro-to-US dollar exchange rate that was approximately 6.5%
below the 1999 average; and
o our sale of a non-strategic European product line.
Partially offsetting these negative sales factors was the full year of
operating contributions by our 1999 acquisition of MEC Betras.
Our increase in consolidated sales from 1998 to 1999 resulted from strong
demand, particularly in the second half of 1999, in ECS for components in the
local area networking, telecommunication and power conversion markets, and a
full year of operating contributions from FEE and GTI acquisitions. Our 1998
results included FEE contributions for approximately six months and GTI for
approximately six weeks.
Cost of Sales
Gross margin for 2000 was 38.3% of sales. The comparable amounts for 1999
and 1998 are 32.4% and 31.7%, respectively.
Our margin for the ECS increased from the prior year as a result of volume
efficiencies, a favorable sales mix and the full year effect of cost control
programs that were instituted in the first quarter of 1999.
The ECPS margin increased slightly from the prior year due to cost
reduction efforts such as Strategy 2000. Strategy 2000 is explained below.
Product mix was an offsetting factor, due to a higher content of precious metals
on which we realize low margins, in 2000 compared with 1999. We assume little to
no price risk on sales of precious metals. For additional description of raw
materials and precious metals see page 9.
Page 21 of 60
The increased gross margin from 1998 to 1999 was due to proportionately
more sales from ECS than ECPS, even though the gross margins for both segments
were individually lower in 1999 than 1998. ECS's margins were lowered due to the
FEE and Valor acquisitions and related integration efforts. ECPS's margins
decreased as cost reduction efforts were more than offset by weaknesses in the
European markets, which caused our fixed costs to be allocated over less volume.
Operating Expenses
Our total selling, general and administrative expenses (excluding ECPS's
Strategy 2000 restructuring charge in the first quarter of 2000) for 2000, 1999
and 1998 were as follows. Amounts are in thousands:
2000 1999 1998
---- ---- ----
Selling, general & administrative
expenses $131,113 $110,694 $88,827
Percentage of net sales 19.7% 20.9% 19.8%
Selling, general and administrative expense increased in absolute dollars
but decreased as a percentage of sales in 2000 as compared to 1999 primarily for
the following reasons:
o Compensation expense associated with performance incentive plans which
are linked to operating profits, economic profit and earnings per
share targets was $4.3 million higher in 2000 compared to 1999;
o stock compensation plan expense which is variable in relation to our
quoted share price ($41.125 per share at the end of 2000 compared to
$22.250 per share at the end of 1999) was $4.1 million higher in 2000
compared to 1999;
o higher spending was required to support the higher level of ECS sales;
and
o expenses related to acquisition development and integration activity
were higher in 2000 compared to 1999.
Partially offsetting these factors was the full-year effect of the cost
reduction program instituted in both segments in the first quarter of 1999 and
the impact of ECPS's Strategy 2000 restructuring program that was initiated in
the first quarter of 2000.
The increase in total selling, general and administrative expenses from
1998 to 1999 resulted from increased spending to support more sales volume,
significantly higher expenses incurred with implementing and optimizing a global
ERP system within ECPS, costs associated with integrating our most recent
acquisitions, costs associated with reorganizing the ECPS business and expenses
related to acquisition development activity within the ECPS.
Page 22 of 60
Restructuring costs and other non-recurring items totaling approximately
$3.3 million, net, relate to the ECPS. Our ECPS managers realigned certain
operations in 2000 to maximize market opportunities and reduce costs after an
overall strategic reassessment of ECPS's business, particularly in Europe. An
element of Strategy 2000 was aimed at reducing our ECPS employment levels by
approximately 120 people, primarily in Germany. This reduction may be partially
offset by targeted hiring of individuals dedicated to certain product lines and
initiatives. Other elements of Strategy 2000 call for relocation of high-volume,
repetitive production to lower-cost locations, worldwide continuous process
improvement efforts, and the expansion of our more profitable and automated
business based in Germany. As a result of the program, we provided approximately
$3.7 million for employee severance and related payments. In addition, we
recorded approximately $0.9 million of charges related to the impairment of
certain assets within the ECPS and $0.9 million for other exit costs. Offsetting
these Strategy 2000 costs was a gain of approximately $1.4 million related to
the sale of a non-strategic European product line and a $0.8 million gain
related to an insurance settlement. Both of these items also relate to the ECPS.
Although we developed the plan for Strategy 2000 during the quarter ended
March 31, 2000 and announced the plan to employees, no employee termination
payments were made under the plan as of that date. A total of 46 people were
terminated under the plan as of December 29, 2000. It is anticipated that the
majority of the employee related severance matters related to Strategy 2000 will
be completed by the end of the first quarter of 2001. For many of the terminated
employees, severance agreements include statutory notice-period pay and a
lump-sum severance payment at the end of the notice period. As many affected
employees remained within the notice period during 2000, a substantial portion
of the reserve was not used until severance payments were made late in 2000 and
early in 2001. The savings of the plan began in 2000, although we will not
realize the full benefit of the program until the completion of the part-time
retirement aspect of the program. As part of Strategy 2000, approximately 65
people elected to leave the Company under a German government approved part-time
retirement program. The people in the part-time retirement program will retire
at varying times, the latest of which is in 2002. Cost savings from the
reduction in employment levels will affect both cost of goods sold and general
and administrative expenses. (See Note 12 of Notes to Consolidated Financial
Statements for additional discussion.)
Page 23 of 60
We include research, development and engineering expenses within selling,
general and administrative expenses. We refer to research, development and
engineering expenses as RD&E. RD&E by segment for the past three years is as
follows. Amounts are in thousands:
2000 1999 1998
---- ---- ----
ECS $15,748 $13,972 $11,085
Percentage of segment sales 3.6% 4.6% 5.1%
ECPS $ 4,430 $ 5,639 $ 5,755
Percentage of segment sales 2.0% 2.5% 2.5%
RD&E spending within the ECS increased from 1999 in absolute dollars as the
ECS continues to invest in new technologies and related improvements to respond
to rapid technology changes in its marketplace. As a percentage of sales, the
ECS spending is less than the prior year as the ECS sales reached record levels
in 2000. RD&E spending within ECPS decreased from 1999 due to the
disproportionate share of RD&E required by the non-strategic European product
line that was divested in the first quarter of 2000. Neither segment anticipates
any significant changes to RD&E efforts in the near-term.
Interest
Interest income for 2000 was $6.3 million compared with $1.9 million in
1999 and $2.1 million in 1998. Cash and cash equivalents were substantially
higher during 2000 than during 1999, and the average percentage of yield was
also higher throughout 2000. Our higher level of interest income in 2000 over
1999 was also due to the majority of the increase in cash in 1999 being
generated during the latter part of 1999.
For 2000, interest expense was $3.5 million compared with $3.5 million in
1999 and $3.3 million during 1998. The slight increase in interest expense in
1999 resulted from higher debt levels than 1998, particularly in the early part
of 1999 as we had used debt to partially finance our November 1998 acquisition
of GTI/Valor. Partially offsetting the effect of higher debt levels in 1999 was
more favorable interest rates on our European debt facilities in 1999 compared
to 1998.
Please see the section titled "Interest Rate Risk" under Item 7a of this
report for additional information regarding interest.
Page 24 of 60
Income Taxes
Our effective income tax rate during 2000 was 19.2%. This compares to 24.9%
in 1999 and 36.4% in 1998. The substantial decrease in our effective tax rate
from 1998 to 1999 resulted from actions initiated in the first quarter of 1999
following a comprehensive global review of our business operations. This review
was aimed at ensuring that our overall tax rate is optimal and appropriate. Also
contributing to the lower overall tax rate was a decline in the proportion of
taxable income attributable to high-tax jurisdictions such as Germany. In
addition, in 2000, a higher proportion of income was earned in low-tax
jurisdictions by the ECS.
We have benefited over recent years from favorable offshore tax treatments;
however, there are no assurances that such treatments will continue in the
future. Developing countries and, in particular, the People's Republic of China,
may change their tax policies at any time. In addition to income tax policies,
we monitor developments relating to other business taxes.
Other Issues
Precious Metal
The ECPS uses silver as well as other precious metals in the manufacturing
of electrical contacts, rivets and other products. Historically, we have leased
or held the majority of these materials through consignment arrangements with
our suppliers. Our leasing and consignment costs have been substantially below
the costs to borrow funds to purchase the metals. In addition, the risk of a
decrease in the market price of owned precious metal can be substantial. During
the first quarter of 1998, and to a lesser extent in early 1999, the price of
silver increased significantly. The associated leasing costs also increased. The
terms of sale within the ECPS allow us to charge customers for the current
market value of silver. However, the interest expense component of leasing costs
cannot always be recovered. Thus far we have been successful in managing the
costs associated with our precious metals. While limited amounts were purchased
during 1999 for use in production, the vast majority of our precious metal
inventory continues to be leased or held on consignment. If our
leasing/consignment fees increase significantly in a short period of time, and
we are unable to recover these increased costs through higher sale prices, a
negative impact on our results of operations and liquidity may result. We
believe this risk is shared by our competitors.
Page 25 of 60
Item 7a Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
Our financial instruments, including cash and cash equivalents and
long-term debt, are exposed to changes in interest rates in both the U.S. and
abroad. We invest our excess cash with high-credit-rated financial institutions.
We generally limit our exposure to any one financial institution to the extent
practical. Our board has adopted policies relating to these risks, and the audit
committee of the board continually monitors compliance with these policies.
All of our existing credit facilities have variable interest rates.
Accordingly, interest expense may increase if the rates associated with, or the
amount of, our borrowings move higher. In addition, we may pursue additional or
alternative financing for growth opportunities in one or both segments. We may
use interest rate swaps or other financial derivatives in order to manage the
risk associated with changes in market interest rates. However, we have not used
any of these instruments to date.
The table below presents principal amounts in equivalent U.S. dollars
and related weighted average interest rates by year of maturity for our debt
obligations. The carrying value of long-term debt approximates its fair value
after taking into consideration current rates offered to us for similar debt
instruments of comparable maturities. We do not hold or issue financial
instruments or derivative financial instruments for trading purposes. Amounts
are in thousands:
Approx.
There- Fair
2001 2002 2003 2004 2005 after Total Value
---- ---- ---- ---- ---- ----- ----- -----
Liabilities
Long-term debt
Fixed rate:
Euro (1) $ 151 $ 164 $ 9,815 $ 147 $ 114 $ 4,939 $15,330 $15,330
Wt. ave. interest rate 9.02% 9.02% 5.28% 9.02% 9.02% 5.73%
Variable rate:
Euro (1) $ 15,431 $ 17,827 $33,258 $33,258
Wt. ave. interest rate 5.48% 5.63%
(1) U.S. dollar equivalent
Page 26 of 60
Foreign Currency Risk
We conduct business in various foreign currencies, including those of
emerging market countries in Asia and well-developed European countries. In
order to reduce our exposure resulting from currency fluctuations, we may
purchase currency exchange forward contracts and/or currency options. These
contracts guarantee a predetermined rate of exchange at the time the contract is
purchased. This allows us to shift the majority of the risk of currency
fluctuations from the date of the contract to a third party for a fee. In
determining the use of forward exchange contracts and currency options, we
consider the amount of sales and purchases made in local currencies, the type of
currency, and the costs associated with the contracts. At December 29, 2000, we
had a foreign exchange contract in place to sell forward $3.2 million of U.S.
dollars for French francs, in connection with our purchase of the electrical
contacts business of Engelhard- CLAL on January 4, 2001. See additional
discussion in Note 16 of Notes to Consolidated Financial Statements.
The table below provides information about our non-derivative, non U.S.
dollar denominated financial instruments and presents the information in
equivalent U.S. dollars. Amounts are in thousands:
Approx.
There- Fair
2001 2002 2003 2004 2005 after Total Value
---- ---- ---- ---- ---- ----- ----- -----
Assets
Cash and equivalents
Variable rate:
Euro (1) $ 3,212 $ 3,212 $ 3,212
Other currencies (1) $ 1,579 $ 1,579 $ 1,579
Liabilities
Long-term debt
Fixed rate:
Euro (1) $ 151 $ 164 $9,815 $147 $114 $4,939 $15,330 $15,330
Wt. ave. interest rate 9.02% 9.02% 5.28% 9.02% 9.02% 5.73%
Variable rate:
Euro (1) $15,431 $17,827 $33,258 $33,258
Wt. ave. interest rate 5.48% 5.63%
(1) U.S. dollar equivalent
Item 8 Financial Statements and Supplementary Data
Information required by this item is incorporated by reference from the
Independent Auditors' Report found on page 31 and from the consolidated
financial statements and supplementary schedule on pages 32 through 57.
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
None
Page 27 of 60
Part III
Cross Reference Index
Form 10-K
Item Number and Caption Incorporated Material
----------------------- ---------------------
Item 10 Directors and Executive Officers of the Registrant Registrant's Definitive Proxy Statement
Item 11 Executive Compensation Registrant's Definitive Proxy Statement
Item 12 Security Ownership of Certain Beneficial Owners Registrant's Definitive Proxy Statement
and Management
Item 13 Certain Relationships and Related Transactions Registrant's Definitive Proxy Statement
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this report
Financial Statements
Independent Auditors' Report
Consolidated Balance Sheets - December 29, 2000 and December 31, 1999
Consolidated Statements of Earnings - Years ended December 29, 2000
and December 31, 1999 and 1998
Consolidated Statements of Cash Flows - Years ended December 29, 2000
and December 31, 1999 and 1998
Consolidated Statements of Changes in Shareholders' Equity - Years
ended December 29, 2000 and December 31, 1999 and 1998
Notes to Consolidated Financial Statements
Financial Statement Schedules
Schedule II, Valuation and Qualifying Accounts
(b) Reports on Form 8-K
None
(c) Exhibits
(21) Subsidiaries of the Registrant
(23) Consent of Certified Public Accountants
Page 28 of 60
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TECHNITROL, INC.
By /s/ James M. Papada, III
-------------------------------
James M. Papada, III
Chairman of the Board of Directors,
Chief Executive Officer and President
Date March 12, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By
-------------------------------------
Stanley E. Basara
Director
Date March 12, 2001
By /s/ John E. Burrows, Jr.
-------------------------------------
John E. Burrows, Jr.
Director
Date March 12, 2001
By /s/ Rajiv L. Gupta
-------------------------------------
Rajiv L. Gupta
Director
Date March 12, 2001
By /s/ J. Barton Harrison
-------------------------------------
J. Barton Harrison
Director
Date March 12, 2001
By /s/ David H. Hofmann
-------------------------------------
David H. Hofmann
Director
Date March 12, 2001
By /s/ Graham Humes
-------------------------------------
Graham Humes
Director
Date March 12, 2001
By /s/ Edward M. Mazze
-------------------------------------
Edward M. Mazze
Director
Date March 12, 2001
By /s/ Drew A. Moyer
-------------------------------------
Drew A. Moyer
Corporate Controller and Secretary
(Principal Accounting Officer)
Date March 12, 2001
By /s/ Larry D. Olson
-------------------------------------
Larry D. Olson
Director
Date March 12, 2001
By /s/ Albert Thorp, III
-------------------------------------
Albert Thorp, III
Vice President - Finance and Chief
Financial Officer
(Principal Financial Officer)
Date March 12, 2001
Page 29 of 60
Index to Financial Statements and Schedules
Financial Statements
Independent Auditors' Report
Consolidated Balance Sheets - December 29, 2000 and December 31, 1999
Consolidated Statements of Earnings - Years ended December 29, 2000 and December
31, 1999 and 1998
Consolidated Statements of Cash Flows - Years ended December 29, 2000 and
December 31, 1999 and 1998
Consolidated Statements of Changes in Shareholders' Equity - Years ended
December 29, 2000 and December 31, 1999 and 1998
Notes to Consolidated Financial Statements
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
Page 30 of 60
Independent Auditors' Report
The Board of Directors and Shareholders
Technitrol, Inc.:
We have audited the consolidated financial statements of Technitrol, Inc. and
subsidiaries as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we also have audited the financial
statement schedule as listed in the accompanying index. These consolidated
financial statements and the financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements and the financial statement schedule
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Technitrol, Inc. and
subsidiaries as of December 29, 2000 and December 31, 1999, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 29, 2000, in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the
related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG LLP
Philadelphia, Pennsylvania
February 23, 2001
Page 31 of 60
Technitrol, Inc. and Subsidiaries
Consolidated Balance Sheets
December 29, 2000 and December 31, 1999
In thousands, except per share data
2000 1999
---- ----
Assets
------
Current assets:
Cash and cash equivalents $ 162,631 $ 88,161
Trade receivables, net 108,423 77,514
Inventories 86,001 65,101
Prepaid expenses and other current assets 11,679 8,512
--------- ---------
Total current assets 368,734 239,288
Property, plant and equipment 173,739 150,926
Less accumulated depreciation 81,341 68,204
--------- ---------
Net property, plant and equipment 92,398 82,722
Deferred income taxes 11,235 8,615
Excess of cost over net assets acquired, net 47,064 48,666
Other assets 1,340 1,948
--------- ---------
$ 520,771 $ 381,239
========= =========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Current installments of long-term debt $ 151 $ 167
Accounts payable 35,046 26,186
Accrued expenses 103,140 71,084
--------- ---------
Total current liabilities 138,337 97,437
Long-term liabilities:
Long-term debt, excluding current installments 48,437 60,329
Other long-term liabilities 9,567 7,838
Commitments and contingencies (Note 7)
Shareholders' equity:
Common stock: 75,000,000 shares authorized; 33,236,762 and
16,265,838 outstanding in 2000 and 1999, respectively; $.125
par value per share and additional paid-in capital
63,909 48,263
Retained earnings 266,132 171,278
Other (5,611) (3,906)
--------- ---------
Total shareholders' equity 324,430 215,635
--------- ---------
$ 520,771 $ 381,239
========= =========
See accompanying Notes to Consolidated Financial Statements.
Page 32 of 60
Technitrol, Inc. and Subsidiaries
Consolidated Statements of Earnings
Years ended December 29, 2000 and December 31, 1999 and 1998
In thousands, except per share data
2000 1999 1998
---- ---- ----
Net sales $ 664,378 $ 530,436 $ 448,539
Cost of sales 409,856 358,553 306,296
--------- --------- ---------
Gross profit 254,522 171,883 142,243
Selling, general and administrative expenses 131,113 110,694 88,827
Restructuring and other non-recurring items 3,305 -- --
--------- --------- ---------
Operating profit 120,104 61,189 53,416
Other income (expense):
Interest income 6,341 1,882 2,080
Interest expense (3,482) (3,477) (3,264)
Other, net (49) (585) 111
--------- --------- ---------
2,810 (2,180) (1,073)
--------- --------- ---------
Earnings before income taxes 122,914 59,009 52,343
Income taxes (23,606) (14,697) (19,034)
--------- --------- ---------
Net earnings $ 99,308 $ 44,312 $ 33,309
========= ========= =========
Net earnings per share:
Basic $ 3.05 $ 1.38 $ 1.04
========= ========= =========
Diluted $ 3.02 $ 1.36 $ 1.03
========= ========= =========
See accompanying Notes to Consolidated Financial Statements.
Page 33 of 60
Technitrol, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years ended December 29, 2000 and December 31, 1999 and 1998
In thousands
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net earnings $ 99,308 $ 44,312 $ 33,309
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 22,378 19,411 16,280
Tax benefit from employee stock compensation 1,893 429 708
Amortization of stock incentive plan expense 6,990 2,327 1,186
Loss on sale of property, plant and equipment 1,301 1,076 --
Deferred taxes (4,239) 3,319 3,415
Changes in assets and liabilities net of effect of
acquisitions and divestitures:
Trade receivables (31,527) (9,345) (1,705)
Inventories (22,032) 5,745 (4,634)
Accounts payable 10,630 3,788 5,191
Accrued expenses 23,816 (3,028) (4,688)
Other, net 5,270 1,218 665
--------- -------- --------
Net cash provided by operating activities 113,788 69,252 49,727
--------- -------- --------
Cash flows from investing activities:
Acquisitions, net of cash acquired (5,365) (15,277) (42,804)
Capital expenditures, exclusive of acquisitions (29,976) (18,766) (20,398)
Proceeds from sale of property, plant and equipment 571 1,115 368
--------- -------- --------
Net cash used in investing activities (34,770) (32,928) (62,834)
--------- -------- --------
Cash flows from financing activities:
Principal payments on long-term debt (36,243) (73,185) (25,483)
Long-term borrowings 27,269 77,753 44,218
Dividends paid (4,430) (4,133) (3,759)
Exercise of stock options 220 5 97
Sale of stock through employee stock purchase plan 8,388 916 --
Purchase of Technitrol stock -- -- (145)
--------- -------- --------
Net cash (used in) provided by financing activities (4,796) 1,356 14,928
Net effect of exchange rate changes on cash 248 (82) (61)
--------- -------- --------
Net increase in cash and cash equivalents 74,470 37,598 1,760
Cash and cash equivalents at beginning of year 88,161 50,563 48,803
--------- -------- --------
Cash and cash equivalents at end of year $ 162,631 $ 88,161 $ 50,563
========= ======== ========
See accompanying Notes to Consolidated Financial Statements.
Page 34 of 60
Technitrol, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
Years ended December 29, 2000 and December 31, 1999 and 1998
In thousands, except per share data
Other
-------------------------
Accumulated
Common stock and other
paid-in capital Deferred compre- Compre-
------------------- Retained compen- hensive hensive
Shares Amount earnings sation income income
------ ------ -------- ------ ------ ------
Balance at January 1, 1998 16,135 $43,148 $101,800 $(1,178) $(1,395)
Purchase of common stock (8) (145) -- -- --
Stock options, awards and related
compensation 43 1,398 -- (614) --
Tax benefit of stock compensation -- 708 -- -- --
Currency translation adjustments -- -- -- -- 1,660 $ 1,660
Net earnings -- -- 33,309 -- -- 33,309
-------
Comprehensive income -- -- -- -- -- $34,969
=======
Dividends declared ($.11625 per share) -- -- (3,882) -- --
------ ------- -------- ------- -------
Balance at December 31, 1998 16,170 $45,109 $131,227 $(1,792) $ 265
====== ====== ======= ====== ===
Stock options, awards and related
compensation 66 1,809 -- (609) --
Tax benefit of stock compensation -- 429 -- -- --
Stock issued under employee stock
purchase plan 30 916 -- -- --
Currency translation adjustments -- -- -- -- (1,770) $(1,770)
Net earnings -- -- 44,312 -- -- 44,312
-------
Comprehensive income -- -- -- -- -- $42,542
=======
Dividends declared ($.13125 per share) -- -- (4,261) -- --
------ ------- -------- ------- -------
Balance at December 31, 1999 16,266 $48,263 $171,278 $(2,401) $(1,505)
====== ====== ======= ====== ======
Stock options, awards and related
compensation 88 5,365 -- (1,470) --
Tax benefit of stock compensation -- 1,893 -- -- --
Stock issued under employee stock
purchase plan 265 8,388 -- -- --
Currency translation adjustments -- -- -- -- (235) $ (235)
Net earnings -- -- 99,308 -- -- 99,308
-------
Comprehensive income -- -- -- -- -- $99,073
=======
Dividends declared ($.135 per share) -- -- (4,454) -- --
Two-for-one stock split effective in
November 2000 16,618 -- -- -- --
------ ------- -------- ------- -------
Balance at December 29, 2000 33,237 $63,909 $266,132 $(3,871) $(1,740)
====== ====== ======= ====== ======
See accompanying Notes to Consolidated Financial Statements.
Page 35 of 60
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
------------------------------------------
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of Technitrol,
Inc. (the "Company") and all of its subsidiaries. All material intercompany
accounts and transactions are eliminated in consolidation.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include funds invested in a variety of liquid
short-term investments with a maturity of three months or less.
Inventories
- -----------
Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out (FIFO) method. In addition to the inventories
included in the accompanying balance sheets, the Company has custody of
inventories under consignment-type leases from suppliers ($40.8 million at
December 29, 2000 and $39.5 million at December 31, 1999). This inventory
consists primarily of precious metals which are used in the Company's electrical
contact products manufacturing business. Included in interest expense for the
year ended December 29, 2000 are consignment interest fees of $1.1 million.
These interest costs were $1.4 million in both 1999 and 1998.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are stated at cost. Depreciation is based
upon the estimated useful life of the assets on both the accelerated and the
straight-line methods. The estimated useful lives of assets range from 5 to 30
years for buildings and improvements and from 3 to 10 years for machinery and
equipment. Expenditures for maintenance and repairs are charged to operations as
incurred, and major renewals and betterments are capitalized. Upon sale or
retirement, the cost of the asset and related accumulated depreciation are
removed from the balance sheet, and any resulting gains or losses are included
in earnings.
(continued)
Page 36 of 60
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
-------------------------------------------
Excess of Cost over Net Assets
- ------------------------------
Excess of cost over net assets acquired is amortized on a straight-line
basis over 15 years. When events and circumstances so indicate, the
recoverability of its carrying value is evaluated by determining whether its
remaining balance can be recovered through future undiscounted cash flows from
operations. Such events and circumstances include a sale of all or a significant
part of the operations associated with the excess of cost over net assets
acquired, or a significant decline in the operating performance of the net
assets. If an evaluation indicates that the carrying value cannot be recovered
through future operating undiscounted cash flows, an impairment charge will be
recorded by discounting the future operating cash flows using the implied cost
of capital for that business segment and comparing the resulting discounted cash
flow to the carrying value.
Revenue Recognition
- -------------------
Revenue is recognized upon shipment of product and passage of
title without right of return.
Stock-based Compensation
- ------------------------
The Company accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25). Note 11 presents proforma results of operations as if
Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
(FAS 123), had been used to account for stock-based compensation plans.
Foreign Currency Translation
- ----------------------------
Certain foreign subsidiaries of the Company use the U.S. dollar as the
functional currency and others use a local currency. For subsidiaries using the
U.S. dollar as the functional currency, monetary assets and liabilities are
translated at year-end exchange rates while non-monetary items are translated at
historical rates. Income and expense accounts are translated at the average
rates in effect during the year, except for depreciation which is translated at
historical rates. Gains or losses from changes in exchange rates are recognized
in earnings in the year of occurrence. For entities using a local currency as
the functional currency, net assets are translated at year-end rates while
income and expense accounts are translated at average exchange rates.
Adjustments resulting from these translations are reflected directly in
shareholders' equity. We hedge significant cash-based transactional exposures,
but we do not hedge remeasurement and translation exposures.
(continued)
Page 37 of 60
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
-------------------------------------------
Financial Instruments and Derivative Financial Instruments
- ----------------------------------------------------------
The carrying value of cash and cash equivalents, accounts receivable,
short-term borrowings and accounts payable are a reasonable estimate of their
fair value due to the short-term nature of these instruments. The carrying value
of long-term debt approximates its fair value after taking into consideration
current rates offered to the Company for similar debt instruments of comparable
maturities. The fair values of financial instruments have been determined
through information obtained from quoted market sources and management
estimates. The Company does not hold or issue financial instruments or
derivative financial instruments for trading purposes.
The Company is exposed to market risk from changes in interest rates,
foreign currency exchange rates and precious metal prices. To mitigate the risk
from these changes, the Company periodically enters into hedging transactions
which have been authorized pursuant to the Company's policies and procedures.
Gains and losses related to qualified hedges of firm commitments and anticipated
transactions are deferred and are recognized in income or as adjustments of
carrying amounts when the hedged transaction occurs. All other forward exchange
and option contracts are marked-to-market and unrealized gains and losses are
included in current-period net income. At December 29, 2000, the Company had a
foreign exchange contract in place to sell forward $3.2 million of U.S. dollars
for French francs, in connection with the purchase of the electrical contacts
business of Engelhard-CLAL on January 4, 2001. See additional discussion in Note
16 of Notes to Consolidated Financial Statements. At December 31, 1999, the
Company did not have any derivative financial instruments outstanding, other
than to sell forward approximately $1.2 million of precious metal purchased as
part of the acquisition of MEC Betras Italia S.r.l. on December 22, 1999.
Estimates
- ---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ significantly from those
estimates.
Reclassifications
- -----------------
Certain amounts in the prior-year financial statements have been
reclassified to confirm with the current-year presentation.
(continued)
Page 38 of 60
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(2) Acquisitions
------------
GTI Corporation ("GTI"): On November 16, 1998, the Company acquired all of
------------------------
the capital stock of GTI, whose principal operating unit was Valor Electronics,
Inc. ("Valor"). Valor designed and manufactured magnetics-based components for
signal processing and power transfer functions used primarily in local area
networking and also in telecommunications and broadband products. At the time of
acquisition, manufacturing operations were located in the People's Republic of
China and the Philippines. GTI's corporate offices were located in San Diego,
California.
The total purchase price included approximately $34.0 million paid to the
former shareholders of GTI. In addition, transaction expenses and related
acquisition costs were incurred. To complete the acquisition, the Company used
approximately $14.0 million of cash on hand, and drew down approximately $20.0
million from previously unused bank lines of credit.
The acquisition was accounted for by the purchase method of accounting. An
allocation of purchase price to the assets acquired and liabilities assumed was
made using fair values that include values based on independent appraisals and
management estimates. The approximate fair value of the net assets acquired was
$30.1, million resulting in goodwill of approximately $5.8 million. These
amounts reflect adjustments made during 1999 to reflect the final allocation of
the purchase price to the fair value of assets acquired and liabilities assumed.
The fair value of liabilities assumed included a reserve of approximately
$3.7 million for restructuring the GTI businesses. The amount was established in
accordance with Emerging Issues Task Force Issue 95-3, "Recognition of
Liabilities in Connection with a Purchase Business Combination," and was
intended to cover the estimated expenses related to integrating GTI's operations
into existing Electronic Components Segment ("ECS") facilities. Expenses were
incurred primarily for terminating employees, leasehold terminations and other
related exit costs, and no reserve remained at December 29, 2000.
(continued)
Page 39 of 60
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(2) Acquisitions, continued
-------------
GTI experienced significant financial difficulty prior to its acquisition
by the Company, and the Company has made significant changes in GTI's
businesses, as noted above. As a result, the Company does not believe that the
following unaudited pro forma financial information, which reflects continuing
operations only and assumes GTI was acquired on January 1, 1998, is indicative
of the results that actually would have occurred if the acquisition had been
consummated on the date indicated or which may be attained in the future (in
thousands, except for earnings per share).
Year Ended
Dec. 31, 1998
-------------
Net sales $489,336
Net earnings $17,627
Diluted earnings per share $1.09
FEE Technology, S.A. ("FEE"): On July 3, 1998, the Company purchased all of
-----------------------------
the capital stock of FEE. FEE designed and manufactured magnetic components for
telecommunications and power conversion equipment. FEE is now part of the ECS.
The total purchase price including assumed debt was approximately $17.0
million and was funded by cash on hand. In addition, transaction expenses and
related acquisition costs were incurred. The approximate fair value of the net
assets acquired was $8.3 million resulting in goodwill of approximately $8.7
million. The fair value of liabilities assumed included approximately $1.7
million for restructuring the FEE businesses, which was completed by December
31, 1999. The $1.7 million was primarily for severance payments and other
related exit costs resulting from closing factories.
The acquisition was accounted for by the purchase method of accounting and,
therefore, the financial results of FEE have been included with those of the
Company beginning on July 3, 1998. Historical pro forma results of operations
would not be materially different from actual results.
(continued)
Page 40 of 60
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(3) Financial Statement Details
---------------------------
The following provides details for certain financial statement captions at
December 29, 2000 and December 31, 1999 (in thousands):
2000 1999
---- ----
Inventories:
Finished goods $ 28,710 $ 21,916
Work in progress 15,907 13,624
Raw materials and supplies 41,384 29,561
-------- --------
$ 86,001 $ 65,101
======== ========
Property, plant and equipment, at cost:
Land $ 4,081 $ 4,226
Buildings and improvements 32,362 30,951
Machinery and equipment 137,296 115,749
-------- --------
$173,739 $150,926
======== ========
Accrued expenses:
Income taxes payable $ 37,214 $ 20,868
Dividends payable 1,122 1,098
Accrued compensation 26,746 18,013
Other accrued expenses 38,058 31,105
-------- --------
$103,140 $ 71,084
======== ========
(continued)
Page 41 of 60
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(4) Long-term Debt
--------------
At December 29, 2000 and December 31, 1999, long-term debt was as follows
(in thousands):
2000 1999
---- ----
Bank Loans
Variable-rate (U.S. LIBOR plus 0.40%), multi-currency revolving credit
facility with $125.0 million maximum draw, due June 29, 2001 (6.90% rate
at December 31, 1999) $ -- $11,000
Variable-rate (EURIBOR plus 0.50%), Eurocurrency revolving credit facility
with $20.0 million maximum draw, due June 19, 2001 (5.46% rate at
December 29, 2000) 14,018 13,954
Variable-rate (EURIBOR plus 0.625%), multi-currency bank loan facility with
$40.0 million maximum draw, due December 31, 2001 (5.625% rate at
December 29, 2000) 17,827 19,051
Fixed-rate (5.57% and 4.85%), unsecured debt in Germany (denominated in Deutsche
marks) due June 26, 2003 9,636 10,298
Fixed-rate (5.65%), unsecured debt in Germany (denominated in Deutsche marks) due
August 2, 2009 4,818 5,150
Variable-rate (EURIBOR plus 0.625%), Eurocurrency offering basis credit facility
with $5.0 million maximum draw, due June 29, 2001 (5.625% rate at December 29,
2000) 1,413 --
------- -------
Total bank loans 47,712 59,453
Mortgage Notes, secured by mortgages on land, buildings, and certain equipment:
8.20% - 10.32% mortgage notes, due in monthly installments until 2007 876 1,043
------- ------
Total long-term debt 48,588 60,496
Less current installments 151 167
------- -------
Long-term debt excluding current installments $48,437 $60,329
======= =======
(continued)
Page 42 of 60
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(4) Long-term Debt, continued
---------------
At the Company's option, interest on the $125.0 million multi-currency
revolving credit facility may be based on the prime rate or on LIBOR. The
facility is secured by a pledge of the stock of certain of the Company's
domestic subsidiaries. All borrowings on that facility have been denominated in
U.S. dollars.
The Company entered into the Eurocurrency offering basis credit facility
during 2000. The facility is unsecured and outstanding borrowings are
denominated in the Euro.
The Company has two fixed-rate term loans due on June 26, 2003. Each is for
approximately $4.8 million as of December 29, 2000. The interest rates are 5.57%
and 4.85%.
The Company entered into a $10 million eurocurrency credit facility in
December 2000 to finance a portion of the Engelhard-CLAL purchase, which was
completed on January 4, 2001. The interest rate is based EURIBOR plus 0.55%, and
the facility expires on December 31, 2001.
Principal payments due within the next five years, based on terms of the
Company's debt arrangements, are as follows (in thousands):
2001 $15,582
2002 17,991
2003 9,815
2004 147
2005 114
All outstanding borrowings under the variable-rate credit facilities have
been classified as non-current because the Company has the ability and the
intent to refinance these obligations on a long-term basis.
The bank loan facilities contain certain covenants requiring maintenance of
minimum net worth and other customary and normal provisions. The Company is in
compliance with all such covenants.
(continued)
Page 43 of 60
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(5) Research, Development and Engineering Expenses
----------------------------------------------
Research, development and engineering expenses ("RD&E") are included in
selling, general and administrative expenses and were $20.2 million, $19.6
million and $16.8 million in 2000, 1999 and 1998, respectively, for continuing
operations. RD&E includes costs associated with new product development, product
and process improvement, engineering follow-through during early stages of
production, design of tools and dies, and the adaptation of existing technology
to specific situations and customer requirements. The research and development
component of RD&E, which generally includes only those costs associated with new
technology, new products or significant changes to current products or
processes, was $14.4 million, $12.8 million and $12.5 million in 2000, 1999 and
1998, respectively.
(6) Income Taxes
------------
Earnings (loss) before income taxes were as follows (in thousands):
2000 1999 1998
---- ---- ----
Domestic $ (5,849) $ 934 $ 5,984
Non-U.S. 128,763 58,075 46,359
--------- ------- -------
Total $ 122,914 $59,009 $52,343
========= ======= =======
Income tax expense was as follows (in thousands):
2000 1999 1998
---- ---- ----
Current:
Federal $ 3,382 $ 736 $ 4,420
State and local 458 858 688
Non-U.S. 24,005 9,784 10,511
--------- ------- -------
27,845 11,378 15,619
Deferred (benefit) expense (4,239) 3,319 3,415
--------- ------- -------
$ 23,606 $14,697 $19,034
========= ======= =======
(continued)
Page 44 of 60
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(6) Income Taxes, continued
-------------
Amounts credited to additional paid-in capital include the tax benefit of
certain components of employee compensation related to the Company's common
stock. Such items include dividends paid on restricted stock, the change in
value from the award date to the release date of restricted stock which was
released during the period, and employee compensation related to the exercise of
stock options.
A reconciliation of the statutory federal income tax rate with the
effective income tax rate follows:
2000 1999 1998
---- ---- ----
Statutory federal income tax rate 35% 35% 35%
Increase (decrease) resulting from:
Tax-exempt earnings of subsidiary in Puerto
Rico (1) (1) (1)
State and local income taxes, net of federal
tax effect 1 1 1
Non-deductible expenses and other foreign
income subject to U.S. income tax 3 3 10
Foreign (19) (14) (10)
Other, net -- 1 1
--- --- ---
Effective tax rate 19% 25% 36%
=== === ===
(continued)
Page 45 of 60
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(6) Income Taxes, continued
-------------
Deferred tax assets and liabilities included the following (in thousands):
2000 1999
---- ----
Assets:
Inventories $ 896 $ 1,064
Plant and equipment 1,194 355
Vacation pay and other compensation 1,766 886
Pension expense 844 776
Stock awards 1,806 1,411
Accrued liabilities 5,519 4,387
Net operating losses 3,729 4,483
Capital losses carryover 6,582 6,582
Other 1,951 227
-------- --------
Total deferred tax assets 24,287 20,171
Valuation allowance (6,582) (6,582)
-------- --------
Net deferred tax assets 17,705 13,589
Liabilities:
Deferred taxes on foreign operations 2,600 2,600
Other -- 123
-------- --------
Total deferred tax liabilities 2,600 2,723
-------- --------
Net deferred tax assets 15,105 10,866
Less current deferred tax assets 3,870 2,251
-------- --------
Long-term deferred income taxes $ 11,235 $ 8,615
======== ========
Based on the Company's history of taxable income and its projection of future
earnings, management believes that it is more likely than not that sufficient
taxable income will be generated in the foreseeable future to realize the net
deferred tax assets.
The Company has not provided for U.S. federal income and foreign
withholding taxes on approximately $339.9 million of non-U.S. subsidiaries'
undistributed earnings (as calculated for income tax purposes) as of December
29, 2000. Such earnings include pre-acquisition earnings of foreign entities
acquired through stock purchases, and are intended to be reinvested outside of
the U.S. indefinitely. It is not practical to estimate the amount of
unrecognized deferred taxes on these undistributed earnings. Where excess cash
has accumulated in the Company's non-U.S. subsidiaries and it is advantageous
for tax reasons, subsidiary earnings may be remitted.
(continued)
Page 46 of 60
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(7) Commitments and Contingencies
-----------------------------
The Company conducts a portion of its operations from leased premises and
also leases certain equipment under operating leases. Total rental expense
amounts for the years ended December 29, 2000 and December 31, 1999 and 1998
were $5.9 million, $5.4 million and $4.5 million, respectively. The aggregate
minimum rental commitments under non-cancelable leases in effect at December 29,
2000 were as follows (in thousands):
Year
Ending
------
2001 $ 7,109
2002 5,416
2003 4,885
2004 4,001
2005 3,484
Thereafter 1,905
-------
$26,800
=======
The Company is involved in several legal actions relating to waste disposal
sites. The Company's involvement in these matters has generally arisen from the
alleged disposal by licensed waste haulers of small amounts of waste material
many years ago. In addition, as a result of the acquisition of GTI, the Company
is involved in studying and undertaking certain remedial actions with respect to
groundwater pollution and soil contamination conditions at a facility in
Leesburg, Indiana. The Company anticipates making additional environmental
expenditures in future years to continue its environmental studies, analysis and
remediation activities. Based on current knowledge, the Company does not believe
that any future expenses associated with environmental remediation will have a
material impact on the financial position of the Company.
The Company is also subject to various lawsuits, claims and proceedings
which arise in the ordinary course of its business. The Company does not believe
that the outcome of any of these lawsuits will have a material adverse effect on
its financial results.
The Company accrues costs associated with environmental and legal matters
when they become probable and reasonably estimable. Accruals are established
based on the estimated undiscounted cash flows to settle the obligations and are
not reduced by any potential recoveries from insurance or other indemnification
claims. Management believes that any ultimate liability with respect to these
actions in excess of amounts provided will not materially affect the Company's
operations or consolidated financial position.
(continued)
Page 47 of 60
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(8) Shareholders' Equity
--------------------
On October 19, 2000, the Company's Board of Directors approved a
two-for-one split of the Company's common stock in the form of a 100% common
stock dividend for shareholders of record as of November 6, 2000, payable
November 27, 2000. A total of 16,618,381 shares were issued in connection with
the split. The stated par value of each share was not changed from $.125.
Relevant share and per share amounts have been restated to retroactively reflect
the stock split.
The retained earnings of the Company at December 29, 2000 include
approximately $8.5 million which has been restricted in accordance with the laws
of the People's Republic of China (PRC). This amount, which is based on the
earnings of the Company's subsidiaries in the PRC, may not be available for
distribution to the U.S. parent company or its shareholders but is not required
to be held in cash.
The Company has a Shareholder Rights Plan. The Rights are currently not
exercisable, and automatically trade with the Company's common shares. However,
after a person or group has acquired 15% or more of the common shares, the
Rights will become exercisable, and separate certificates representing the
Rights will be distributed. In the event that any person or group acquires 15%
of the common shares, each holder of two Rights (other than the Rights of the
acquiring person) will have the right to receive, for $135, that number of
common shares having a market value equal to two times the exercise price of the
Rights. Alternatively, in the event that, at any time following the date in
which a person or group acquires ownership of 15% or more of the common shares,
the Company is acquired in a merger or other business combination transaction,
or 50% or more of its consolidated assets or earning power is sold, each holder
of two Rights (other than the Rights of such acquiring person or group) will
thereafter have the right to receive, upon exercise, that number of shares of
common stock of the acquiring entity having a then market value equal to two
times the exercise price of the Rights. The Rights may be redeemed by the
Company at a price of $.005 per Right at any time prior to becoming exercisable.
Rights that are not redeemed or exercised will expire on September 9, 2006.
The Company has a qualified, non-compensatory employee stock purchase plan
that provides substantially all U.S. employees an opportunity to purchase common
stock of the Company. The purchase price is equal to 85% of the fair value of
the common stock on either the first day of the offering period or the last day
of the purchase period, whichever is lower. The offering periods and purchase
periods are defined by the plan, but are generally 24 and six months in
duration, respectively. In connection with this stock purchase plan, 1,000,000
shares of common stock are reserved for issuance under the plan. In 2000 and
1999, employees purchased approximately 530,000 and 60,000 shares, respectively.
(continued)
Page 48 of 60
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(9) Earnings Per Share
------------------
Basic earnings per share are calculated by dividing earnings by the
weighted average number of common shares outstanding (excluding restricted
shares) during the year. For calculating diluted earnings per share, common
share equivalents and restricted stock outstanding are added to the weighted
average number of common shares outstanding. Common share equivalents result
from outstanding options to purchase common stock as calculated using the
treasury stock method. Such amounts were approximately 5,500 in 2000 and 36,000
in 1999 and 1998. Relevant share amounts and earnings per share have been
restated to reflect a two-for-one stock split effective on November 27, 2000.
Earnings per share calculations are as follows (in thousands, except per share
amounts):
2000 1999 1998
---- ---- ----
Net income $99,308 $44,312 $33,309
Basic earnings per share:
Shares 32,510 32,092 31,962
Per share amount $3.05 $1.38 $1.04
Diluted earnings per share:
Shares 32,859 32,492 32,406
Per share amount $3.02 $1.36 $1.03
(continued)
Page 49 of 60
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(10) Employee Benefit Plans
----------------------
The Company and certain of its subsidiaries maintain defined benefit
pension plans and make contributions to multi-employer plans covering certain
union employees. Certain non-U.S. subsidiaries have varying types of retirement
plans providing benefits for substantially all of their employees.
Pension expense (benefit) was as follows (in thousands):
2000 1999 1998
---- ---- ----
Principal defined benefit plans $ 149 $ (982) $ (176)
Multi-employer and other employee benefit plans 490 295 206
------- ------- -------
$ 639 $ (687) $ 30
======= ======= =======
The expense for the principal defined benefit pension plans include the
following components (in thousands):
2000 1999 1998
---- ---- ----
Service cost - benefits earned during the period $ 1,309 $ 1,180 $ 1,093
Interest cost on projected benefit obligation 1,566 1,399 1,376
Expected actual return on plan assets (2,430) (2,256) (2,290)
Curtailment gain -- (664) --
Net amortization (296) (641) (355)
------- ------- -------
Net periodic pension cost $ 149 $ (982) $ (176)
======= ======= =======
(continued)
Page 50 of 60
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(10) Employee Benefit Plans, continued
-----------------------
The financial status of the principal defined benefit plans at December 29, 2000
and December 31, 1999, was as follows (in thousands):
2000 1999
---- ----
Change in benefit obligation:
Benefit obligation at beginning of year $ 20,989 $ 20,910
Service cost 1,190 1,180
Interest cost 1,566 1,399
Actuarial gain (656) (880)
Plan termination (900)
Plans not previously aggregated (1) 2,109 --
Benefits paid (801) (720)
-------- --------
Benefit obligation at end of year 24,397 20,989
-------- --------
Change in plan assets:
Fair value of plan assets at beginning of year 26,548 25,951
Actual return on plan assets 5,082 3,189
Employer contributions -- --
Plan termination (1,872)
Plans not previously aggregated (1) 852 --
Benefits paid (793) (720)
-------- --------
Fair value of plan assets at end of year 31,689 26,548
-------- --------
Funded status 7,292 5,559
Unrecognized:
Net gains (11,491) (9,496)
Prior service cost 633 654
Net transition obligation 62 17
-------- --------
Accrued pension costs at the end of the year $ (3,504) $ (3,266)
======== ========
(continued)
(1) These Plan obligations and related expenses have been historically reflected
in the Company's financial results but were not aggregated in the disclosure
due to immateriality in prior years.
Page 51 of 60
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(10) Employee Benefit Plans, continued
-----------------------
Benefits are based on years of service and average final compensation. For
U.S. plans, the Company funds, annually, at least the minimum amount required by
the Employee Retirement Income Security Act of 1974. Depending on the investment
performance of plan assets and other factors, the funding amount may be zero.
Plan assets consist principally of short-term investments and listed bonds and
stocks. Assumptions used to develop data for 2000 and 1999 were as follows:
Discount rate 7.3%
Annual compensation increases 4.8%
Expected long-term rates of return on plan assets 9.0%
The Company maintains defined contribution 401(k) plans covering
substantially all U.S. employees not affected by certain collective bargaining
agreements. Under the primary 401(k) plan, the Company contributed a matching
amount equal to $.50 for each $1.00 of the participant's contribution not in
excess of 3% of the participant's annual wages. Beginning September 1, 1999, the
Company increased its contribution amount to a matching amount equal to $1.00
for each $1.00 of the participant's contribution not in excess of 4% of the
participant's annual wages. The total contribution expense under the 401(k)
plans for employees of continuing operations was $1,529,000, $681,000 and
$586,000 in 2000, 1999 and 1998, respectively.
The Company does not provide any significant post-retirement benefits other
than the pension plans and 401(k) plans described above.
(11) Stock-Based Compensation
------------------------
The Company has an incentive compensation plan for employees of the Company
and its subsidiaries. One component of this plan grants the recipient the right
of ownership of Technitrol, Inc. common stock, conditional on the achievement of
performance objectives and/or continued employment with the Company. A summary
of the shares under the incentive compensation plan is as follows:
Available to
be granted
------------
Shares authorized 2,400,000
Awarded during years prior to 2000, net of cancellations (1,925,162)
------------
Balance at December 31, 1999 474,838
Awarded during 2000, net of cancellations (90,712)
------------
Balance available at December 29, 2000 384,126
============
(continued)
Page 52 of 60
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(11) Stock-Based Compensation, continued
-------------------------
During the years ended December 29, 2000 and December 31, 1999 and 1998,
the Company issued to employees, net of cancellations, incentive compensation
shares having an approximate fair value at date of issue of $2,598,000,
$1,683,000 and $1,210,000, respectively. Shares are held by the Company until
the continued employment requirement and/or performance criteria have been
attained. For shares subject to continued employment requirements, the market
value of the shares at the date of grant is charged to expense during the
vesting period on a straight-line basis. For shares subject to performance
criteria, the expense varies with the market value of the shares until the
performance criteria are met or are deemed to be unachievable. Cash awards,
which accompany shares released under the Incentive Compensation Plan and are
intended to assist recipients with their resulting personal tax liability, are
based on the market value of the shares when restrictions lapse. Cash awards are
accrued over the restriction period, and the related expense is variable based
on the market value of the shares. Amounts charged to expense as a result of the
Incentive Compensation Plan and related expenses were $6,990,000 in 2000,
$2,327,000 in 1999 and $1,186,000 in 1998. A substantial portion of the shares
granted are subject to variable accounting, whereby the related compensation
expense is adjusted to reflect the impact of market price of the underlying
shares awarded.
The Company also has a stock award plan for non-employee directors. The
Board of Directors Stock Plan was approved in 1998 to assist the Company in
attracting and retaining highly qualified persons to serve on the Company's
Board of Directors. Under the terms of the plan, 60,000 shares of the Company's
common stock are available for grant. On an annual basis, shares amounting to a
dollar value predetermined by the plan are issued to non-employee directors. In
2000 and 1999, 5,096 and 10,848 shares, respectively, (including those deferred
at the directors' election) were issued under the plan. A total of 38,264 shares
remain available for issuance under the plan.
In connection with the 1995 acquisition of Pulse Engineering, options which
had been granted for the purchase of Pulse common shares were assumed by the
Company and converted into options to purchase Technitrol common stock. At
December 29, 2000, 5,878 options remained outstanding, all of which were
exercised during the first quarter of 2001. No additional options are expected
to be granted under the assumed plans.
The Company has not issued any stock options to employees, except for those
options assumed in connection with the acquisition of Pulse. The fair value of
those options was included in the purchase price of the acquisition, and,
accordingly, is amortized as part of the goodwill associated with the
acquisition. The options have no additional impact on the earnings of the
Company under the provisions of FAS 123.
(continued)
Page 53 of 60
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(11) Stock-Based Compensation, continued
-------------------------
As permitted by the provisions of FAS 123, the Company applies Accounting
Principles Board Opinion 25, "Accounting for Stock Issued to Employees" and
related interpretations in accounting for its stock-based employee compensation
plans. Accordingly, no compensation cost has been recognized for the Company's
employee stock purchase plan. If compensation cost for the Company's employee
stock purchase plan had been determined based on the fair value as required by
FAS 123, the Company's pro forma net income and earnings per basic and diluted
share for 2000 would have been $78.2 million, $2.41 and $2.38, and for 1999
would have been $43.9 million, $1.37 and $1.35, respectively.
(12) Restructuring and Other Non-recurring Items
-------------------------------------------
During the first quarter of 2000, the Company initiated a restructuring
plan, referred to as "Strategy 2000," aimed at reducing the costs of
manufacturing in the ECPS's operations. Employee termination and other costs
were recognized in accordance with Emerging Issues Task Force Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)" and
SEC Staff Accounting Bulletin No. 100, "Restructuring and Impairment Charges."
Accordingly, reserves were established for these costs during the quarter ended
March 31, 2000. The affected employees include both direct and indirect
personnel, and are primarily located at the Company's facility in Pforzheim,
Germany. A total charge of $5.5 million was included in the line titled
"Restructuring and other non-recurring items" in the consolidated statements of
earnings for the year ended December 29, 2000. Approximately $3.7 million of
this amount relates to employee termination costs and $.9 million relates to
exit costs within the ECPS. In addition, a charge of $.9 million was made for
the impairment of certain assets in the segment. Partially offsetting these
amounts was a gain of approximately $1.4 million related to the sale of a
non-strategic European product line and a $.8 million gain related to a business
interruption insurance settlement. (See additional discussion under Results of
Operations in Item 7 of this Report.)
Restructuring Provision (Amounts in millions:)
-----------------------
Accrued in quarter ended March 31, 2000 $ 4.6
Severance payments (1.2)
Non-cash asset disposals (0.9)
----
Balance at December 29, 2000 $ 2.5
====
(continued)
Page 54 of 60
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(13) Supplementary Information
-------------------------
The following amounts were charged directly to costs and expenses
(in thousands):
2000 1999 1998
---- ---- ----
Depreciation $18,548 $15,678 $13,933
Amortization of intangible assets 3,830 3,733 2,347
Advertising 662 780 799
Repairs and maintenance 10,382 6,480 6,472
Bad debt expense 1,063 116 632
Cash payments made:
Income taxes $14,218 $17,604 $11,813
Interest 3,530 3,528 3,344
Accumulated other comprehensive income as disclosed in the Consolidated
Statements of Changes in Shareholders' Equity consists principally of foreign
currency translation items.
(14) Segment Information
-------------------
The "Business Segment Financial Information" and "Geographic Information"
sections on pages 2 through 8 of this Form 10-K are integral parts of the
Company's consolidated financial statements.
(continued)
Page 55 of 60
Technitrol, Inc. and Subsidiaries
Notes to Consolidated Financial Statements, continued
(15) Quarterly Financial Data (Unaudited)
------------------------------------
Quarterly results of operations (unaudited) for 2000 and 1999 are
summarized as follows (in thousands, except per share data):
Quarter Ended
-------------
Mar. 31 June 30 Sept. 29 Dec. 29
------- ------- -------- -------
2000:
Net sales $152,693 $163,186 $170,674 $177,825
Gross profit 54,141 62,542 68,549 69,290
Net earnings 16,832 24,884 27,784 29,808
Net earnings per share:
Basic .52 .77 .85 .91
Diluted .52 .76 .84 .90
Apr. 2 July 2 Oct. 1 Dec. 31
------ ------ ------ -------
1999:
Net sales $125,230 $127,857 $137,032 $140,317
Gross profit 38,139 40,028 44,052 49,664
Net earnings 8,736 10,275 12,218 13,083
Net earnings per share:
Basic .27 .32 .38 .41
Diluted .27 .32 .37 .40
Earnings per share amounts reflect stock splits through December 29, 2000.
(16) Subsequent Event
----------------
The Company completed the acquisition of the electrical contacts business
of Engelhard-CLAL headquartered in Noisy, France on January 4, 2001. The
business will operate as a unit of the ECPS. Net sales are expected to be
approximately $25 million in 2001.
Page 56 of 60
Technitrol, Inc. and Subsidiaries
Financial Statement Schedule II
Valuation and Qualifying Accounts
(In thousands of dollars)
Additions (Deductions)
-----------------------------------
Charged to Write-offs
Balance costs and and Balance
Description January 1 expenses payments Other(1) December 31
- ----------- --------- --------- --------- ------- ----------
Year ended December 29, 2000:
Reserve for obsolete and slow-moving
inventory $ 6,283 $ 8,129 $ (5,186) $ -- $ 9,226
========= ========= ========= ========= =========
Reserve for doubtful accounts $ 882 $ 1,063 $ (37) $ -- $ 1,908
========= ========= ========= ========= =========
Year ended December 31, 1999:
Reserve for obsolete and slow-moving
inventory $ 17,134 $ 4,483 $ (15,334) $ -- $ 6,283
========= ========= ========= ========= =========
Reserve for doubtful accounts $ 819 $ 116 $ (53) $ -- $ 882
========= ========= ========= ========= =========
Year ended December 31, 1998:
Reserve for obsolete and slow-moving
inventory $ 3,720 $ 3,541 $ (4,280) $ 14,153 $ 17,134
========= ========= ========= ========= =========
Reserve for doubtful accounts $ 202 $ 632 $ (416) $ 401 $ 819
========= ========= ========= ========= =========
- ----------
(1) Primarily relates to acquisitions
Page 57 of 60
Exhibit Index
DOCUMENT
- --------
3. (a) Articles of Incorporation Incorporated by reference to
Exhibit 1 from Form 8-A/A dated
April 10, 1998
(b) By-laws Incorporated by reference to
Exhibit 3(ii) from Form 10-Q for
the quarter ended July 2, 1999
4. Instruments defining rights of Incorporated by reference to Form
security holders 8-A/A dated July 5, 2000
21. Subsidiaries of Registrant Page 59
23. Consent of Certified Public Page 60
Accountants
- --------------------------------------------------------------------------------
Page 58 of 60